Why Safety is the Foundation of Financial Security

The pursuit of safety is as much an emotional state of mind as it is a conservative investment posture. As people draw near to retirement, they seem to evolve into conservative investors. There’s just no amount of time left to make a come-back in their portfolios, especially when they’re drawing down income, i.e. experiencing the negative consequences of the sequence of returns.

The traditional mindset of withdrawing income at 4% is no longer being generated with stocks and bonds without some risk. What does some risk mean? It’s different for each one of us. But most of us define risk in retirement as an untenable option, i.e. no risk at all!

For the most part, non-qualified fixed rate guaranteed annuities are leading the 5-year fixed rates over other savings vehicles. The interest rate currently credited is around 3%. There is maybe a bit more to gain with an indexed annuity if you can hold it perhaps 10 years to allow the indices to cycle through their ups and downs. Most advisers that use indexed annuities are estimating about 5%, but that’s no guarantee.

Debt is not safety. Its cost is not cheap. Its monetary opportunity loss is costly. Sometimes when there’s no place to turn to for financial safety, paying down debt may have a return of its own. It sure has a positive psychological benefit. Paying down debt in a low interest rate market may be a good strategy while waiting for interest rates to rise. Many retirees are foregoing their Social Security and qualified plan monies until age 70 to maximize benefits and allow their market holdings an opportunity to grow while they wait for interest rates to rise.

Social Security benefits, annuity payouts, and reverse mortgage income are safe bets when there’s no other safe products to wager.